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Covid-19 to cause ‘lasting’ damage to UK economy

Chancellor Rishi Sunak has used his spending review to warn of the “lasting” damage novel coronavirus (Covid-19) will do to the UK economy, saying the pandemic will continue to impact growth and jobs for a number of years.

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The UK will this year borrow a total of £394bn

Speaking in parliament, Sunak revealed that the UK economy is set to shrink by 11.3% in 2020 – its largest decline in 300 years – and will not return to its pre-pandemic levels until at least the end of 2022.

The economy is expected to grow 5.5% in 2021 and 6.6% in 2022 as the UK continues to recover from the impact of the pandemic, though the Office for Budget Responsibility (OBR) warned this could be lower if the UK were to leave the European Union without a deal.

“This is an economic emergency, and that is why this government has taken, and continue to take, extraordinary measures to protect people's jobs and incomes,” Sunak said in parliament.

Other key figures included that the UK will this year borrow a total of £394bn, the highest amount in peacetime.

This is an economic emergency, and that is why this government has taken, and continue to take, extraordinary measures to protect people's jobs and incomes

An OBR projection also forecast that unemployment will increase to 2.6m by the middle of next year, the highest level since the 2009 financial crisis.

However, this is lower than previously expected, with Sunak highlighting how the government’s job protection scheme and other initiatives have helped some businesses through the crisis.

Some 1.62m people across the UK are currently unemployed.

Sunak also confirmed that the UK would cut its foreign aid to 0.5% of national income in 2021-22, down from the current 0.7% commitment set out in law.

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